CAN GERMANY RIDE THE STORMY TRADE WINDS IN FACE OF TRUMP’S PROTECTIONISM?

JAMIE RICHARDSON

APRIL 2018

A report from the Statistisches Bundesamt (Ministry for Statistics), released on Wednesday 21st February, named China as Germany’s biggest trading partner. This comes at a time where trade hostilities between Germany, the US and the EU are on the rise. Trump’s protectionist ‘America First’ policy has at its core a prioritisation of its homeland industries, namely steel and aluminium, through the introduction of tariffs. Similarly, as EU officials begin to draw up a new seven-year-plan, not doubt inspired by those of Stalin nearly a century ago, the Brexit deficit of 14 billion euros has left smaller EU-member states disgruntled. Germany appears to be at an economic impasse. How should Europe’s largest economy react to American protectionism? And does this economic power vacuum present a new opportunity for a European-orientated World Trade Order?

Since reunification in 1989, Germany has been without question Europe’s economic powerhouse. Within its confined trading peripheries, the introduction of the euro strengthened German exports massively. The strong regulatory framework provided by Deutsche Bank for the common currency has prevented many of the anticipated downfalls of a transnational currency from being realised. The removal of currency exchange costs boosted trade between European states; France was from 1975-2014 Germany’s largest trading partner. Yet, in the context of globalisation German exporting has reached new heights. The Statistisches Bundesamt’s announcement on Wednesday 21st February reaffirmed that China, for a second year running, is Germany’s largest trading partner. The trade between the Bund and the People’s Republics totalled 186.6 billion euros. This represents a trade deficit for the Germans of 14.3 billion euros. This is not to say, however, that Germany’s European trade partners have been made redundant. With net trade summating 177.3 billion euros, the Netherlands is Germany’s second largest trade partner. France and the UK occupy fourth and fifth, respectively. Notable here is the impressive export excess Germany has over both the UK and France: Britons are down 47.2 billion euros and the French 41 billion.

The wider impact of ‘America First’

Undiscussed in the above section is the Germany-US trade relationship. I argue this relationship requires more attention given the recent recommendations of US finance minister, Wilbur Ross. In his report commissioned by Trump, Ross calls for measures looking to protect steel and aluminium industries on home soil. The first recommendation suggests a 24% tariff on all steel imports. Alternatively, an import tariff of 53% could be placed on steel arriving from 12 nations, including Brazil, China and India, with import quotas being set for other countries. The final recommendation would see a cap in the region of 63% on the total imported steel. The aim of these measures is to boost the percentage of American steel sold in the US from 73%-80%. And, though German steel makes up only 2.5% of that imported into the States, it is the principle of reintroducing what German media is labelling “draconian” tariffs that may damage the US trade relationship with Germany and the EU. As such, though protectionist measures resonate well amongst American voters, it may lead dwindling US economic influence on this side of the pond.

The US is the largest importer of ‘Made in Germany’ goods, with total imports equating to 112 billion euros. American imports into Germany, however, total only 61 billion euros, which makes America Germany’s fourth largest importer. In the face of Ross’ tariff measures, this reliance on US exports may appear problematic for German economists and politicians alike. The President of the Bundesverband der Deutschen Industrie (Federal Association for German Industry), Dieter Kempf, has voiced concerns over the impact tariffs will have on export-nation Germany to the US government. Indeed, half of jobs in heavy industry, and a quarter of all jobs in the Federal Republic, are reliant on exports to the US. Though America is only one of Germany’s trading partners, a tariff war would in any case threaten the job security of millions of Germans: the new and vastly unpopular GroKo (Grand Coalition: CDU & SPD) would struggle to survive in the face of such job losses. There remains, however, a European dimension to this issue.

European Angst: A turn away from the West

It is not just German industrial workers, however, who should fear a backlash from American protectionism. Experts from the Schweizer Wirstschaftsforschungsinstitut (Swiss Institute for Economic Research) have analysed the economic influence of German exports in other EU-member states. The study outlining this analysis has estimated that roughly 5 million jobs Europe-wide are secured through German exports. The bulk of these jobs are located in newly ‘ascended’ nations such as: Slovakia, Poland and Czechia. Though these countries may be more prone to a bit of populist nationalism similar to that of Trump, in the same breath they are unlikely to support any actions which threaten their own economic security. This research has come at a perfect time for EU officials, who are in the midst of planning the next EU seven-year economic plan. Brexit has amongst other things left a gaping 14 billion euro hole in the EU budget. With smaller nations, such as those above, disgruntled by the prospect of forking out more cash, it would appear larger contributors such as Germany may have to foot the bill. Fortunately for the EU elites, Germany has already expressed a willingness to do so. It appears that the Germans may be the only ones who place their faith in a strong economic future in the European Union. A survey carried out by the Pew Research Centre in June 2017 asked respondents who they wanted to carry out trade deal negotiations: their respective nation-state or the EU. Only Germans (sixty percent) supported an EU-led negotiation approach. The Greeks (sixty-three percent), French (fifty-six percent) and Hungarians (fifty-five percent) all supported their national governments over EU negotiating teams.

I find this result, however, not out of the ordinary: recent EU Free Trade Agreements (FTA) have favoured an encroachment on national sovereignty by multinational corporations. The Transatlantic Trade and Investment Partnership (TTIP), which sought to break down trade barriers at the expense of national governments’ law-making abilities, received much protest from Europeans. And rightly so. One clause in the agreement gave private companies the right to sue national governments, should they impose a law which prevents a product being sold in that country. One thing is clear: the EU must take a new approach when drawing up multilateral trade agreements if it is to keep the Union together. An approach in which globalisation works for the worker and firms alike. I believe this new approach lies in a reorientation in economic priorities. Legislative bodies in the European Commission may, too, no longer view America as their primary ideological trading partner.

Brussels is currently lining up a variety of counter-tariffs to those proposed by Wilbur Ross. Bourbon Whiskey and Harley-Davidson motorbikes are the chips on the negotiation table. Beyond being deeply embedded visual representations of American consumer culture, both products have intricate links to pro-Trump politicians in the States. Harley-Davidson motors originate from Wisconsin, the home state of the Republican Speaker for the House of Representatives – Paul Ryan. Similarly, Bourbon Whiskey is produced in Tennessee and Kentucky, which is the home state of Trump supporter – Mitch McConnell. McConnell is the majority leader in the Senate. Additionally, Brussels is targeting Californian orange juice, potatoes and tomatoes. China too is planning on implementing tariffs on American products such as Soya. These politically charged choices may play into certain Trump narratives regarding attacks from a liberal establishment. They are, however, just an act of political reciprocity.

As political force mobilise themselves in face of this tariff war, the EU must look to secure FTAs with other political-economic hubs. Latin America, in particular Brazil, may present prosperous trading opportunities, given that Brazil is a main target of US tariffs. Germany should strive for further influence over the direction of FTAs : if the country is to put more into the European budget and still suffer from US protectionism, then Merkel will be keen to open up new trading routes to ensure the quarter of jobs secured through exports are not threatened by US protectionism. A resultant turn away from US-driven trading tendencies may lead to revival of global European economic primacy. This may in turn encourage the Chinese government to take a more active role in determining global trade winds. Should this be the case, ‘America First’ may end up as ‘America third’, trailing behind Europe and China.